EPA’s Fuel Efficiency Standards: Bad News for the Consumer

Government policies are typically sold as intuitively good ideas. We can give everyone access to health care and cut the deficit. We can inject money into the economy to create jobs and beat the recession. We’ll set up a “Consumer Protection Financial Agency” to do what? Protect the consumer, of course. Government mandates and regulations will help Americans save money on electric bills and at gas stations. The “government knows best” mentality spreads through all sectors of the economy. Yesterday, the Environmental Protection Agency (EPA) delivered that very message when it announced new fuel efficiency standards and tailpipe emission limits that will allegedly save consumers money at the pump. This is just the beginning of a long, regulatory path to regulate carbon dioxide emissions:

The Obama administration unveiled a landmark regulation setting fuel efficiency standards and tailpipe emissions limits — a move that will save 1.8 billion barrels of oil and reshape what Americans drive. The 1,469-page joint final regulation from the National Highway Traffic Safety Administration and Environmental Protection Agency sets estimated average fleet-wide fuel economy requirements at 34.1 mpg by 2016. The reason it isn’t 35 mpg is because automakers can use air conditioning improvement credits to meet part of the requirements for the 2012-2016 model years.

The regulation predicts the higher requirements will cost automakers $51.5 billion over five years and add $985 to the price of an average vehicle in 2016. EPA Administrator Lisa Jackson called it a “victory for automakers” and for drivers. Automakers will get certainty as they plan to meet new tough requirements and will meet just one standard for all states. But the government says the total value to society in reduced gasoline use and lower emissions will be about $240 billion, so the net benefit is about $190 billion.”

We’re lucky to have the government looking out for us. But what they forgot to mention were some of the unintended consequences of fuel efficiency standards. Mandating more miles-per-gallon increases the cost of buying a new car and makes them less safe. While the administration acknowledged higher sticker prices for vehicles, they may have underestimated those increases. Last year, President Obama said consumers would be better off paying $1,300 more for a new car because they will save $2,800 through better gas mileage. Jim Kliesch of Union of Concerned Scientists calls these estimates “completely realistic” in an Autoweek.com article, but other estimates place the price hikes at $1,800 for small cars and $8,000 for large pickups. Sandra Stojkovski of See More Systems, which specializes in systems engineering, “projects the sticker of a compact car will go up $1,800 to $2,000. The price of a mid-sized car is likely to increase $4,500 to $6,000, she says. Outfitting a full-sized pickup with a diesel, rather than a gasoline-powered V-8, and other new equipment could cost $9,000.”

Megan McArdle adds, “It will reduce our carbon emissions, but not by as much as advertised, because more fuel efficient cars make driving cheaper, so people will do more of it. This “rebound” effect robs about 25% of gains, and also means more congestion, and more wear-and-tear on roads.”

Consumers have a wide variety of choices when it comes to purchasing a vehicle; clearly, a number of smaller, fuel-efficient cars exist on the market today – including a growing number of hybrid vehicles. But Americans also need larger, safer vehicles for practical reasons: to take their kids to soccer practice, to tow their boat to the shore, or on small farms to haul equipment or produce. At first glance, more miles-per-gallon may sound like a good thing, but not when it obligates consumers to make sacrifices elsewhere. It’ll be fun for soccer moms to explain to their kids why they have to pile into a clown car and hold their bags on their lap while an 18-wheeler rumbles by next to them.

I'm surprised to see the Heritage Foundation attack a policy that will dramatically lower our dependence on oil. I thought energy independence was something Heritage staffers tended to get behind.

The new standards have different requirements for different sized vehicles, from compacts to SUVs, so it's misleading to say people will have to trade in larger cars for smaller ones. This is, in fact, a change to the policy automakers asked for.

If Mr. Huertas is really concerned about reducing dependance on foreign oil, why doesn't he support drilling in this country?

The reality is that the only energy that will be saved by these policies will be the energy that 10's of thousands of Americans no longer use, because they have been killed while driving these new, tin can cars.

We don't have a position on drilling. But the math shows that it pales in comparison to the gains we'll have from fuel economy. I don't know what research if any your safety comment is based on. In any case, the automakers can make cars that are both more efficient and safer. We have the best engineers in the world and they will meet this challenge.

WASHINGTON (March 31, 2010) – President Obama announced a new offshore-drilling plan today, which would expand oil and natural-gas exploration.

Below is a statement by David Friedman, research director with the Clean Vehicles Program at the Union of Concerned Scientists (UCS).

"When it comes to saving oil, improving the fuel economy of our cars and trucks blows offshore drilling out of the water. Boosting the fuel economy of our cars and trucks to just 35 miles per gallon can save nearly as much oil as we currently import from the Persian Gulf, while saving consumers money at the gas pump. In contrast, opening areas of the Atlantic and Gulf Coast that were previously unavailable for drilling would lower gas prices by less than 2 cents a gallon twenty years from now, while providing less than two months worth of oil over the next two decades."

Background:

* The United States Can Not Drill Its Way to Energy Independence: The United States consumes nearly 25 percent of the world's oil, but holds less than 3 percent of the world's proven reserves. There is not sufficient domestic supply to meet U.S. demand. The only solution to cutting U.S. oil dependence is to decrease consumption through improved energy efficiency and expanding the use of domestic low-carbon alternative fuels.

* Fuel Economy Delivers Greater Consumer Savings: Based on data from the U.S. Energy Information Administration (EIA), UCS estimates that opening areas of the Atlantic and Gulf Coast that were previously unavailable for drilling would cut projected gas prices of nearly $4 per gallon by less than 2 cents per gallon in 2030. By contrast, the proposed fuel economy standards will have the same effect as cutting $4 per gallon gasoline prices in 2030 by about $1 per gallon.

* Fuel Economy Provides Greater Oil Savings and Energy Security: Based on data from the EIA, UCS estimates that expanded offshore drilling in these areas will provide less than 2 months worth of fuel between now and 2030. Specifically, UCS estimates that full access to the Atlantic and Gulf Coast regions would increase oil supply by about 40 billion gallons between now and 2030, while the U.S. currently uses about 25 billion gallons of oil and other petroleum products each month. By 2030, these new resources would yield perhaps 250,000 barrels of oil per day.

By comparison, analysis of the president's proposed fuel economy and greenhouse gas standards for cars and trucks would provide oil savings of about 2 million barrels per day by 2030. That is almost as much as we currently import from the Persian Gulf and nearly ten times what expanded offshore drilling in the Atlantic and Gulf Coast could provide.

Mr Huertas, thank you for posting you UCS affiliation. It and the subsequent UCS references show you are nothing but an advocate for this bad policy.

You ignore many studies that smaller cars are deadlier no matter how well made. That car companies want them is irrelevant. They can just pass the costs on to consumers. Consumers don't want them or need you or the government as a nanny.

US energy independence is not possible or desirable. Energy is a world wide commodity the US participates in and it is best to get it at the lowest price no matter where that is. That we import energy means our economy is efficient and strong enough to use it more cost effectively than anyone else. But it is still best to produce as much as we can. Fuel economy is irrelevant compared to this.

The other UCS based studies you cite are wildly biased with super extreme numbers that are out of sync with more reliable studies and real world effects already seen.

[…] since it provides some regulatory stability, but it doesn’t come with guaranteed consumer demand. Setting aside the other problems with the government mandate, the new government regulations become a problem if it forces car […]

We’re not ignoring anything. If you want to cite the studies you claim make your case, please post here or send them to my email: ahuertas@ucsusa.org. Right now, you’re just making a claim without backing it up.

Not everyone can fit into a smaller car. My husband is very tall and cannot phycially sit in most cars as his knees hit the dash and his head hits the ceiling. Someone some where needs to return COMMON SENSE to America. It should not be all or nothing. Lets build the safest cars with the best gas efficiency possible. Lets still drill for oil offshore, in Alaska and develop all of the other alternatives at the same time. Let the free enterprise system that makes this country so great work. The government is not the answer to all of our problems, in fact it causes more than it solves.

[…] seems our “Esteemed Colleagues” in Washington are finally doing something to mandate higher mileage on vehicles. The problem, as I see it, is the chemistry of the fuel is all kinds of screwy! Add to that the […]

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